If you don’t have 20% for a down payment and/or have credit issues, this might be the loan for you. Even with credit score challenges or past blemishes, the bank can balance multiple compensating factors to determine if you qualify.
An FHA loan is a government-backed program which allows lenders to be more flexible with their requirements. This is a great product for first time home buyers because the down payment can be as low as 3.5%. It is also attractive for credit-challenged borrowers because scores down to 500 can still qualify. As long as there is a steady employment history with enough income to cover the monthly housing expenses, many blemishes can be overlooked.
Mortgage Insurance Required
One caveat is that a portion of your monthly payment will go towards a mortgage insurance premium (MIP), in addition to a one-time mortgage insurance buy-in. This works just like any other insurance. Everyone who participates in the FHA program pools their premiums and covers the risk of borrower default.
Because the lender has this guarantee against risk of loss, they are more forgiving of issues that would cause a borrower to be denied under their conventional programs. The total premium will depend on multiple factors such as the loan term, total amount, and the down payment.
The maximum loan amount under FHA is limited depending on the state and county you live in.
The program is only available to use for homes purchased as a primary residence. Investment properties and second homes do not qualify.
The home appraisal guidelines may be stricter. This is a borrower protection ensuring that the home you purchase is safe and free of defects.
The program is complicated. There are lots of gray areas when dealing with issues like past bankruptcies or foreclosures, outstanding debt and employment. Debt-to-income ratio limits can also vary depending on your unique situation. A loan officer who doesn’t understand how all of these factors come together may prematurely disqualify you, or worse, waste your time by running you into a wall after initiating the application.
It is imperative that you work with an experienced loan officer that specializes in this market.
We offer FHA pre-approvals you can count on.
At HP Mortgage LLC, we know our FHA guidelines in and out—that means you will be pre-approved in 5 minutes or less! We are partnered with FHA-approved lenders offering the lowest rates available.
Please give us a call today!